SECURE Act 2.0 introduces important changes to defined contribution plans. Here’s a quick look at some of the highlights.
2023
Mandatory Provisions
- The age for Required Minimum Distributions (RMDs) has been increased to age 73. This change applies to individuals who turn 72 after December 31, 2022.
- The excise tax penalty for failing to take RMDs has been reduced from 50% to 25%.
- The requirement for plan notices for employees who elect not to participate is no longer mandatory. Instead, an annual reminder notice will be provided, outlining eligibility and relevant election deadlines.
- Individuals with terminal illnesses are now exempt from the 10% early withdrawal penalty.
Optional Provisions
- Participants are allowed to classify employer contributions as Roth.
- Small immediate financial incentives for contributing to the plan are permitted, such as gift cards.
- 403(b)s can invest in Collective Investment Trusts (CITs) as per the amended Code. However, securities laws will require amendment to accommodate this change.
- Repayments of withdrawals for qualified birth or adoption distributions are now limited to 3 years, whereas there previously was no limit.
- Employers can rely on employee self-certification to confirm that deemed hardship conditions are met.
2024
Mandatory Provisions
- Roth balances in employer-sponsored plans are no longer included in the calculation of Required Minimum Distributions (RMDs).
- The Department of Labor (DOL) is mandated to establish a “Lost and Found” database by December 29, 2024. This will aid participants in finding the name of a plan administrator.
- The DOL is directed to issue regulations that allow the use of different benchmarks for plan investments containing a mix of asset classes, such as target date funds, for the required participant disclosures by December 29, 2024.
- The Secretary of the Treasury is tasked with standardizing the rollover process by creating sample forms for rollovers. This initiative must be completed by January 1, 2025.
- If the deceased employee hadn’t started Required Minimum Distributions (RMDs), a surviving spouse election will be treated as an employee for RMD rules.
Optional Provisions
- Student loan repayments can be treated as elective deferrals. Employers have the option to match qualified student loan payments.
- Emergency personal expense distributions of up to $1,000 can be made without incurring the 10% penalty. These distributions can be repaid to the plan within 3 years.
- Roth accounts are permitted for emergency linked savings, up to $2,500 (indexed for inflation). This applies to up to 4 withdrawals per year.
- Victims of domestic abuse can make penalty-free withdrawals from retirement plans, up to the lesser of $10,000 or 50% of the vested balance.
- 403(b) hardship withdrawals now align with current 401(k) rules, allowing distribution of earnings and eliminating the requirement to take a loan before a hardship distribution.
- The dollar limit for small balance force-outs goes up from $5,000 to $7,000.
- Default IRA accounts can be auto-rolled-over to a new employer plan.
2025
Mandatory Provisions
- Catch-up contributions are raised to the greater of $10,000 or 150% of the regular catch-up amount for individuals who will turn at least 60 but not 64 by the end of the current tax year.
- Long-Term, Part-Time Workers are now covered. They must be eligible to contribute to the plan after completing 2 consecutive years with at least 500 hours of service.
- The Secretary of Labor is required to present a report to Congress on improvements in defined contribution fee disclosure by the end of 2025.
Optional Provisions
- Retirement plans are allowed to distribute up to $2,500 per year for covering certain long-term care insurance contract premiums without incurring a penalty. This change is effective from December 29, 2025.
2026
Mandatory Provisions
- Catch-up contributions must be in Roth form for individuals with compensation exceeding $145,000. (The original 2024 implementation requirement is delayed.)
- Annual paper statements are now required, although exemptions will be available.
Optional Provisions
- No new optional provisions for 2026
2027
Mandatory Provisions
- No new mandatory provisions for 2027
Optional Provisions
- Certain participants are eligible for a Federal matching contribution, known as the “Saver’s Match.”
- This credit amounts to 50% of the participant’s non-Roth contributions to an IRA or qualified plan, up to a maximum of $2,000.
- If the match is less than $100, it will be provided as an income tax credit.
- The matching percentage gradually decreases for Adjusted Gross Incomes (AGIs) over specific amounts (e.g., from $41,000 to $71,000 for joint returns).
- Dependents, full-time students, nonresident aliens, and individuals under 18 are not eligible for this credit.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advisory services are offered through Global Retirement Partners, an SEC Registered Investment Advisor. Global Retirement Partners and Strategic Retirement Partners (SRP) are separate entities from LPL Financial.
Global Retirement Partners employs (or contracts with) individuals who may be (1) registered representatives of LPL Financial and investment adviser representatives of Global Retirement Partners; or (2) solely investment adviser representatives of Global Retirement Partners. Although all personnel operate their businesses under the name Strategic Retirement Partners (SRP), they are each possibly subject to differing obligations and limitations and may be able to provide differing products or services.
This information is not intended as authoritative guidance or tax or legal advice. You should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.